Change is coming to India
The likely election of Narendra Modi augurs well for India’s economy and U.S.-India relations.

Reuters

A woman shows her ink-marked finger after casting her vote as others line up to cast their ballot at a polling station in Nakhrai village in Tinsukia district in the northeastern Indian state of Assam April 7, 2014.

Article Highlights

  • As India’s next likely prime minister, can Modi actually scale up the successes of the Gujarat model?

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  • So what would Modi’s possible premiership mean for the U.S., and the world?

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  • Will the controversial Modi live up to his promise, and make India more attractive to the U.S. and the world?

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Today marked the start of the world’s largest democratic exercise: About 814 million Indians will cast their vote in their 16th parliamentary election, which will take place over nine different phases until May 12. Set to be the most historic in decades, this election will see the debut of 65 million young voters born after the 1991 economic liberalization that set the economy on a path of higher growth and jobs. The newly elected prime minister will be the first ever born after India's independence. If the polls are to be believed, this election will also end the decade-long rule of the dynastic Indian National Congress, ushering in a government led by the main opposition Bharatiya Janata Party.

Yet the most interesting element that sets this election apart from previous ones is the battle of ideas over economic messaging between the leading candidates for prime minister. While the Bharatiya Janata Party’s prime ministerial candidate, Gujarat state chief minister Narendra Modi, is seen as a paragon of economic growth and small government, the Indian National Congress’ Rahul Gandhi is more a messenger of redistribution. Blighted by massive corruption and decline in economic growth, the Indian National Congress is set to face its biggest defeat in history. Indian voters are now increasingly showing that economic issues matter, paving the way for the business-friendly Modi to win the elections.

But will the controversial Modi – tainted by anti-Muslim riots in Gujarat in 2002 that took place on his watch and claimed about 1,000 lives – live up to his promise, and make India more attractive to the U.S. and the world?

The Indian National Congress – scarred by billions of dollars worth of corruption scandals and burdened by expensive welfare programs – managed to halve India’s growth rate from an impressive 10 percent in 2010. Staggering inflation levels have affected voters; major foreign investors, such as steel makers POSCO and ArcelorMittal, pulled out of India last year. The rupee recorded a historic low of 68.8 to the dollar in August 2013. This election will also account for the deep public exasperation with corruption through the fledgling common man party, or Aam Aadmi Party, and its anti-corruption leader, Arvind Kejriwal.

Transcending traditional freebies and sops, Indian voters are beginning to frame their issues and problems around economic revival, jobs, controlling inflation, corruption and demanding good governance. Modi’s stellar Gujarat growth model seems like a perfect antidote to India’s problems. Since Modi took over as chief minister of the state in 2001, its economy has been growing at an average of 10 percent, coupled with bureaucratic efficiency and a constant supply of electricity, unlike many other Indian states.

Modi’s message that the government has “no business being in business” goes beyond cant: Business leaders are overwhelmingly putting their money on Modi to revive the economy. Last year, nearly three-quarters of 100 Indian CEOs polled by Nielsen wanted Modi. Most other polls predict a Modi victory and Western countries that previously cut off ties with him due to the 2002 riots are already extending the hand of friendship. In fact, the U.S. was the last in line – after the UK, EU, and Australia – when it ended its isolation of Modi in February 2014 when the U.S. ambassador to India met with him in Gujarat. (Modi has been denied entry to the U.S. since 2005 over the 2002 riots.)

So what would Modi’s possible premiership mean for the U.S., and the world? The U.S. and India are natural allies in many ways. As a symbol of democratic capitalism and potential global economic powerhouse, India serves as a counterweight to Chinese authoritarianism in Asia. Japanese Prime Minister Shinzo Abe and Modi already share a special friendship with common economic and strategic goals, including thwarting China’s territorial aggression in India and Japan. With Modi’s possible ascent, Japan-India ties could receive the boost that would naturally call for closer relations between India and the U.S., given Japan is America’s closest ally in Asia.

However, the current state of U.S.-India relations doesn’t warrant much cheer: U.S. ambassador to India, Nancy Powell, resigned last week, possibly making way for a new official to fix the bilateral rift caused by the arrest and strip search of Indian diplomat Devyani Khobragade in New York last year. American businesses worry about India’s flip-flop on investment rules and policy uncertainty; the 2008 civil nuclear deal and negotiation of a bilateral investment treaty also remain unfulfilled. India needs to make herself more attractive by addressing the current economic slowdown. This includes an impetus to second generation economic reforms that remain pending since the effort to eliminate archaic regulations in 1991.

As India’s next likely prime minister, can Modi actually scale up the successes of the Gujarat model to woo domestic and foreign business investment and revive the economy? If we were to buy his economic messaging, Modi is perhaps the only candidate who could manage this. Of course, this would also depend on the Bharatiya Janata Party's vote share. (No single party has won a parliamentary majority since 1989.) Can we hope for a fuller reconciliation of differences between the U.S. and Modi? This depends on how far Modi proves himself as the reform messiah and to what extent we see an objective and strategic willingness on both sides to forge a pragmatic comradeship. 

Hemal Shah is a researcher for India and South Asia studies at the American Enterprise Institute in Washington, DC. Follow her on Twitter @hemalshah_7.

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